Some things don't scale

If you run a company that sells a particular product, you don’t want to see that good become commodified. You want it to stay as differentiated as possible. If, on the other hand, you run a platform or marketplace that facilitates the buying and selling of that good at a large scale, commodification of the traded product can actually be quite beneficial for your business.

The problem for news organizations is that many of them think they are platforms, when in fact they are content creators.

The business model underpinning some of the world’s most valuable technology companies – Facebook, Google, Uber, and others – is premised on services provided at enormous scale by other people. For each of these companies, serving a product to the next customer – essentially making a match between two sides of the same market – has vanishingly little marginal cost.

For Facebook, adding one new user or displaying one more ad is just about free. Same with Google Search, which matches users looking for information with content creators who can provide it. Even Uber, a business based on sharing physical hardware (cars), can surface a nearby driver to a waiting customer for virtually no incremental cost at all.

The news business doesn’t operate that way. Sure, distribution is near-free: simply publish an article on your site, publicize it on Facebook and Twitter, and serve the page to millions of readers, with absurdly small incremental costs. But the underlying product – the news article itself – is expensive, resource-intensive, and time-consuming to produce: all adjectives that would typically send any sane VC running in the opposite direction.

It seems strange to have to remind journalists of this over and over again, but many are so blinded by the twin suns of Facebook and Google that they’ve persuaded themselves they can operate similarly.

They can’t. A large part of Facebook’s market power is due to the commodification of the underlying content on its platform. The next Mashable article that appears in your newsfeed could just as easily be the next Mic article, which could just as easily be the next Business Insider article. The overwhelming sameness of so much content on Facebook means that the closure of any one site would go virtually unnoticed in the News Feed. From Facebook’s perspective, it’s all replaceable and, for the most part, interchangeable: in short, it’s commodified.

Uber and Facebook, despite operating in vastly different markets, are essentially similar in this way. Both are platforms: they create a marketplace where buyers and sellers can exchange increasingly commodified goods and services, while the platforms themselves – neither of whom have a direct stake in the underlying goods being bought and sold – collect a fee on every transaction. In Facebook’s case, that fee comes from advertisers; in Uber’s case, it’s paid directly by the end consumers.

In both cases, the commodification of the underlying goods benefits the platform. If customers had to make conscious decisions as to which specific Uber driver to request every time they needed a ride, they would be much less likely to use Uber at all. But since one Uber driver is (from the perspective of the rider) almost identical to any other one – that is, he’s a commodity – Uber is an incredibly convenient platform to use: a user simply requests a ride, and Uber sources the closest driver on the user’s behalf.

Here’s the problem for news organizations: in this analogy, they’re the drivers. But they think they’re Uber.

The much-maligned ‘pivot to video’, for example – a desperate plunge into endless video content in a world of fighting-for-scraps CPMs – is so widespread it’s become a bitter meme among media types:

The pivot to video, like so many other ill-conceived flights of journalistic fancy before it, is borne of the myth that journalism can be ‘scaled up’ by doubling down on some hot new channel or format. And this pivot is just one particularly egregious example. In June of last year, I wrote about publishers’ premature enthusiasm for Instant Articles:

But look a little further into the future: eventually, most major news organizations will publish much of their content on Instant Articles. (Indeed, Facebook just opened up the platform to all publishers a mere two months ago.) At that point, there will no longer be a meaningful comparative advantage since everyone else will be on it too, thus enjoying the same page speed and design lift. Facebook won’t be able, nor have any incentive, to promote a particular organization’s Instant Articles because, instead of ten or twenty publishers to promote, they’ll now have 100,000.

Question: In such a world, what are the chances any single news organization’s stories will stand out?

Answer: Roughly the same chances as before Instant Articles existed – except now they’re also forking over 30% of their ad take to Facebook (unless they sell direct). In short, for the cost of building out storage and a few servers to host all that new content, Facebook gained access to news organizations’ output as well as a cut of their ad revenue. (They’re smart, those guys.) It is unclear what news organizations received in return.

In a presentation at the Social Media Week conference in February, The Verge’s audience engagement editor, Helen Havlak, presented a slide comparing views of traditional Verge links posted to Facebook to Verge Instant Articles as a percentage of overall Facebook traffic. It showed that article views from Facebook were essentially flat in 2016, with Instant Articles representing a larger share of that traffic over time. Viewed in this light, Instant Articles had simply replaced one kind of view with another, less profitable one…

It’s easy to see why readers like Instant Articles (they’re fast and uncluttered). And it’s easy to see why Facebook likes Instant Articles (they keep people on Facebook). But for big media companies, the format has looked like a bad bet.

In similar fashion, clickbait, slideshow journalism (designed to increase page load totals and thus impressions), and other tricks have worn down news consumers and led to a rise in ad-blocking. They also haven’t solved any of the underlying economics bedeviling news organizations.

At its core, the economic problem is quite simple: prior to the Internet era, content was relatively scarce, and distribution was expensive. Today, content is nearly infinite, and distribution is virtually free. No feature launch, press release, or PR buzz has changed that underlying math. And until news organizations resist the urge to commodify their own product, nothing else will either.